Ferguson's Forecast: Official Gas Price Forecasts Under Fire

Critics blasted gas price forecasts from the U.S. Energy Information Administration in recent days. One frustrated trader was quoted in the Wall Street Journal as saying the forecasts weren?t worth the powder it would take to blow them to smithereens. Much of the ire directed at USEIA is due to the appalling mistake in its gas storage report the day before Thanksgiving, which cost market participants an estimated $1 billion, but the grumpiness has spilled over onto official price forecasts as well. EIA?s obviously mistaken storage report was inexcusable. But in my opinion, any trader that relies on government bureaucrats for advice on future gas prices deserves to lose money. As I have learned from years of badgering California Energy Commission staff, the computer models used by EIA and the CEC are incapable of anticipating surprises. The models use the projected cost of production to forecast prices and have no way of knowing what is going on in the real world, where gas prices can be much higher, as they have been for years. More puzzling is why official agencies continue to pretend that oil and gas supplies will remain plentiful and prices low despite increasing evidence to the contrary. Perhaps it?s simply because bureaucrats are loath to give their bosses bad news that might require politicians to actually take some action. Or perhaps there really is a grand conspiracy to quash pessimistic views of the future, as some observers suggest. Either way, it?s important to remember that government agencies are political creations. Meanwhile, back in the real world, a brief blast of arctic air over the holidays sent temperatures down and gas consumption up across most of the country east of the Rockies for a few days. But warm air from the Gulf of Mexico quickly moved north, sending temperatures soaring. Since December 28, temperatures in the East and Midwest have been as much as 20 to 30 degrees Fahrenheit above normal. Lack of demand for heating fuel dropped gas prices below $6/MMBtu for the first time since September.

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Ferguson’s Forecast: Official Gas Price Forecasts Under Fire

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